Canada avoided the housing market crash that accompanied the financial crisis in the United States. But a post-recession housing boom, fuelled by record-low borrowing costs, has prompted some analysts to warn a bubble may be in the works. Keep reading.

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It was the first time, the central bank has put a number on housing market overvaluation, suggesting it was between 10% and 30%.

“This situation raises the risk that a shock to the economy could trigger a correction in house prices,” governor Stephen Poloz told reporters in Ottawa, following the release of the bank’s semi-annual Financial System Review, a closely watched research document on potential shocks and their effects on economic stability.

“The probability of this risk materializing is low, but if it did occur, the effect on the economy would be severe.”

Douglas Porter, chief economist at BMO Capital Markets, said the bank’s 10%-to-30% estimate is “a big range, [and] a similar figure to what they would find in Australia and New Zealand.”

“However, [policymakers] note that the market has been at least 10% overvalued since 2007, and there has been only a ‘modest upward creep’ since 2009.”

That said, the Bank of Canada still believes the housing market is headed for a soft landing — dependent on the global economy gaining strength and as interest rates “normalize.”

The probability of this happening is low . . . But if it did, the effect on the economy would be severe

The bank has held its trendsetting lending rate at a near-record-low 1% since September 2010, giving consumers ample time to pile up debt since the 2008-09 recession. The resumption of rate increases is not expected until around mid-2015.

As well, policymakers feel the overall chance of an “adverse shock” to the country’s financial system has eased since they issued their previous review document in June.

“The governor sounded more optimistic on Canada’s economic backdrop, which is ‘gathering strength,’ highlighting the broadening American recovery’s effect on its northerly neighbour’s exports,” said Nick Exarhos at CIBC World Markets.

Mr. Exarhos noted improvements in the labour market and business investment also show why risks to Canada’s financial system have decreased.

Still, the Bank of Canada acknowledged that plummeting oil prices could be a threat to growth in this country, likely shaving 0.3% off gross domestic product in 2015.

“At this stage, we do see it as primarily an economic risk [rather than a risk to the financial sector] and one that, at the moment, looks like it would keep us in the zone of our outlook,” Mr. Poloz told reporters.

But, he added: “Lower oil prices are more likely to boost global growth. . . . That’s a positive thing, both directly and of course indirectly, for Canada.”

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The Bank of Canada also pointed out in its Financial System Review that Canadians’ high level of borrowing for vehicles, “substantially outpacing the growth in other forms of household credit.”

“This can be explained, in part, by strong auto sales and also by important structural changes in the market for auto financing,” the review states. “In particular, there has been a broad shift from lease financing to loan financing since the financial crisis, and banks are taking a more prominent role.”

However, just as with the housing market, the bank said these developments present “only modest concerns, given its small share of overall household debt and the limited exposure of banks.”